Trade war hurts everyone
The war is about to begin and it won’t do any good to anyone. As trade tensions rise between the world’s two major economies, all of us are facing a major challenge. In recent days and weeks, we’ve all seen the simmering tensions between the US and China, and this may be only the beginning unless cooler heads prevail in negotiations. If and when the reciprocal restrictive measures take effect — some could still be weeks away — and if they escalate, there will be severe consequences for jobs and economic growth, not only in the world’s two largest economies but for all of us.
Blaming what it calls forced transfer of US technology and intellectual property infringements by China, the administration of President Donald Trump last Tuesday announced tariffs on US$50 billion worth of Chinese imports. The move came despite warnings from economists that it would eventually lead to broader macroeconomic impact by dampening market sentiment as well as business investment.
The list announced by the US Trade Representative (USTR) contains around 1,300 products, including industrial robots, aerospace products and cars, on which a 25% tariff will be charged.
Production machinery used mainly in factories takes up much of the list, together with chemicals and medicines. Consumer products, which make up a large portion of US imports from China, are of course exempted, since the buyers of these products are price-sensitive voters.
Last week’s announcement was the latest in a back-and-forth argument that began on March 23 when Mr Trump announced a 25% tariff on steel imports and a 10% tariff on aluminium imports. Early last week, the Chinese State Council responded with tariffs of up to 25% on 128 US imports including pork and wine.
And just 11 hours after the latest announcement from Washington, Beijing upped the ante with penalties on $50 billion of US goods ranging from soybeans, cars and chemicals to whisky, cigars and tobacco. Foreign Ministry spokesman Lu Kang strongly condemned the “typical of unilateralism and trade protectionism” that Washington had displayed.
The inclusion of soybeans ended weeks of speculation about whether China would go as far as targeting a commodity it buys in huge volumes from the US. China accounts for 80% of American exports of the animal feed ingredient, in a trade worth $957 million last year. The announcement has alarmed voters in midwestern farm states that are a key part of Mr Trump’s support base.
Mr Trump, who sees the world entirely in terms of winners and losers, has often blamed other nations for US trade deficits. In the case of China, Washington wants to reduce its trade deficit by at least $100 billion from the $375 billion recorded last year.
Although the macroeconomic impact of tariffs may appear limited when measured by the dollar value of goods affected, economists have warned that US business interests in China are much larger than what the trade figures show, and a trade war puts these interests at risk.
Roberto Azevedo, director-general of the World Trade Organization (WTO), cautioned that a fully fledged trade war would have “a severe impact on the global economy” and raise the risk of global growth falling “very quickly”.
The scale of damage done to the global economy, and its rate of expansion, would depend on what the trade war encompassed, he noted.
Nonetheless, as the world looks on anxiously, China at least seems willing to come to the negotiating table. As the date on which tariffs will take effect depends on the outcome of talks with the US, Foreign Ministry spokesman Geng Shuang said China’s door to dialogue with Washington remains open.
Talks between the two countries require mutual respect and equal treatment, instead of being coerced by one party unilaterally. Neither side should be threatening the other with senseless and unreasonable demands.
Pushback by the US side is considered possible and it could benefit the US economy, but only in the short term. The National Association of Manufacturers has already called for a trade agreement rather than the current path towards a conflict.
It is important to try and avoid this escalation. Once the domino effect starts, it will be very difficult to stop. What all sides need is to open communication lines and a true disposition to find constructive solutions.
With a sensible view and long-term picture in mind, the world’s two largest economies could find common ground instead of pursuing a short-sighted strategy of winning an unwinnable game.